(IR) Relevance of goodwill impairment: the case of European banking (2005–2015)

The traditional model of systematic amortization over its useful life was replaced by the annual application of an impairment test, with the intention of correcting the problems of the lack of relevance and difficulty in estimating said useful life of the previous regulatory framework. The aim of th...

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Bibliographic Details
Published inJournal of banking regulation Vol. 22; no. 1; pp. 24 - 38
Main Authors Pallarés Sanchidrián, Jorge, Pérez García, Javier, Gonzalo-Angulo, José A.
Format Journal Article
LanguageEnglish
Published London Palgrave Macmillan UK 01.03.2021
Palgrave Macmillan
Subjects
Amortization
Banking
Banking industry
Economics and Finance
Finance
Financial Law/Fiscal Law
Goodwill
Impaired assets
Original Article
Useful life
Europe
Impairment test
Banking sector
G20
Goodwill
Value relevance of financial reporting
Earnings management
G28
Banking supervision
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Summary:The traditional model of systematic amortization over its useful life was replaced by the annual application of an impairment test, with the intention of correcting the problems of the lack of relevance and difficulty in estimating said useful life of the previous regulatory framework. The aim of this study is to investigate whether the application of the impairment test between 2005 and 2015 in the main European banks has overcome these problems or whether, on the contrary, its application by managers has been discretionary, opportunistic and arbitrary, presenting, as a result, artificially inflated earnings. Our results obtained show that systematic amortisation has been replaced by opportunistic impairment, which does not reflect the economic conditions underlying the financial activity of the main European banks, which gives rise to less relevant financial information and possible harmful pro-cyclical effects.
ISSN:1745-6452
1750-2071
DOI:10.1057/s41261-020-00126-0